Dr. Doom Predicting Slow U.S. Economy for “Years”, Is He Right?
In a recent Op-ed for Project Syndicate, economist Nouriel Roubini, affectionately nicknamed “Dr. Doom,” lays out a thesis for continued sluggish growth of the U.S. economy with a potential recession in 2013. Is he right?
You can read the Op-ed at http://www.project-syndicate.org/commentary/american-pie-in-the-sky
Why You Should Care
Dr. Roubini lays out a five-pronged argument for why the U.S. economy will continue to post sluggish below trend growth for the remainder of 2012 and could potentially tip into outright recession in 2013. His points are:
· Slowing job growth of the second quarter continuing
· Uncertainty over the looming fiscal cliff causes businesses and consumers to retrench
· Fiscal cliff amounts to 4.5% of GDP, lack of action by Congress allows tax cuts to expire
· Wages have actually been declining, so less disposable income for consumers
· External factors slowing U.S. economy (Eurozone, China softness, emerging market slowing)
We wanted to examine this Op-ed to ask the question “with all of these negatives, can the U.S. economy grow?” We share Dr. Roubini’s concerns, and the simple fact is that these concerns are shared by everyone that is connected with forecasting anything that relates to the economy. All of his points are valid, they just aren’t absolute. One problem we have with Dr. Roubini is that he is ALWAYS shouting about the negatives and predicting “once-in-a-lifetime” crashes.
In the meantime, the U.S. economy has expanded for the last 2 years, the U.S. has created over 3 million jobs since October of 2010, and stock prices are up over 100% since the March 2009 lows. We may indeed fall into recession in the U.S. due to Roubini’s list above, but we also must recognize that governments around the world want to avoid another 2008 meltdown and will likely do all they can to avoid it, which means the timing of that contraction is in doubt.
We also saw this same pattern evolve in 2011 as the debt ceiling debate raged in the U.S. Emerging markets were slowing, Europe was dealing with its crisis, and job growth and economic activity stalled in the U.S. The debate went down to the 11th hour, S&P cut the U.S. debt rating, and business activity re-accelerated once the uncertainty had passed.
The U.S. economy is resilient and dynamic, illustrated by the fact that within just 2 years of the end of financial crisis (The Great Recession) which started in 2008 we had risen above our prior peak in GDP. It says a lot about the people of this nation. We are learning to live in this environment of constant uncertainty. It isn’t comfortable, but life does go on. Without much of a growth cushion however, we should be prepared for minor stalls and contractions and should not long for the days of debt-fueled growth that preceded this new reality.
One thing that we at Pathlight have tried to impress upon people is the simple fact that this is what a deleveraging process looks like. You cannot look at the U.S. economy prior to 2008 as the proxy going forward. Since the 1980’s, U.S. consumers have had a seemingly insatiable appetite for debt, but now credit is scarce, and the ability for households to service that debt has been reduced. You have to look at U.S. economic growth in the context of this new deleveraging reality, and that means lower growth and greater potential for contraction.
One of the biggest impediments to economic growth right now is the lack of political will in the U.S. and Europe. Without proper policy changes we will simply repeat the problems of our past and perform our ritual can kicking. We need leadership from our politicians, and we know that’s asking way too much. But the coming Presidential election will provide some greater clarity, regardless of who wins, and we have to have some faith that politicians understand that the fiscal cliff must be addressed if we are to avoid a recession.